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Copper touches $6000 but prices pull back. Now where?

12/04/06

The base metals had another strong day, but for once some metal prices closed off their highs which might start to dent some of the chart profiles and technical indicators – although how relevant these are in today’s market is questionable. The general theme seems to be ongoing fund buying boosted by reports of a host of things that could impact supply. At least LME stocks are now in decline which supports the notion that supply is tight, which it is and strong economic growth should be good for metal demand (albeit somewhat diluted because of substitution), but isn’t a lot of this news already in the price? There was a time when producers would be happy with a copper price of $2400/mt and even if costs of production have increased you would have thought copper at $6000/mt would have provided more than enough margin to cover the increase in costs, so some of the arguments used to justify these high prices seems a bit hard to swallow.

as it has potential to react to events that would not normally impact the metals. As metals are adopted as a vehicle to diversify away from more traditional investments, it means just about any development that affects the financial markets could end up impacting metal prices. Although aluminium has picked-up somewhat in recent days, it still lags behind zinc, copper and nickel and is still not back above its Feb highs at $2678, which suggests some divergence from the pack and lead is also struggling to hold above chart support. Are these two metals giving out a silent warning, they maybe especially when aluminium has in the past been one of the funds’ favourites. In addition the profit-taking in gold and the equities on Tuesday may become more widespread as Easter approaches.

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